How much is enough?
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It doesn't take a lot. For a 30 year old assuming state pension age of 68, each £100 gross into a pension a month, increasing with inflation, would produce a pension pot value of £120,301 with 4.5% growth rate after inflation, about 0.5% below the long term UK stock market average return. that's enough to produce an income of £4,812 a year or £401 a month in today's money. But that's gross. 2018 auto-enrolment rules mean that at least for the first part the net cost is going to be just half of that due to tax relief and mandatory employer matching.In order to have the same lifestyle in retirement as you did earlier on you need to save an awful lot, unless you are lucky enough to have a final salary pension for 40 years.
For an income of £28,000 the auto-enrolment requirement is 8% of eligible pay, call it £2,240 a year, £186.67 a month. 3% from employer, the rest employee and tax relief. For the 30 year old that'd get to a 4% income level of £8,192 a year on top of about £8,000 flat rate state pension. That'd be £14,953 after tax income a year if it was all subject to income tax with a £10,000 annual allowance. 25% of the pension income would be from the tax free lump sum which could be moved to an ISA to make that part tax free, increasing the after tax income to £15,362 a year.
While working the after tax and 5% gross pension contributions net income would be £21,990 a year.
That's a combined after tax pension income that is 69.9% of the working life after tax income, above the often-quoted 60% replacement level. For a net cost of about £93 a month (5/8ths of the auto-enrolment less 20% income tax).
"you need to save an awful lot". Nope. Not even close to an awful lot. Just takes getting started at a reasonably early age, persevering and getting average investment returns.0 -
Overspend is relative to your lifetime sustainable income.
Overspend in your example is driving a brand new BMW now if it means you'll only be able to afford an unreliable old banger (or the bus) in retirement. Balance would driving the level of car that you could afford both before and after retirement. No-one on here has been arguing that you should spend your working years at a level of luxury significantly BELOW that of your retirement. It's all about sustainability and maximising lifetime happiness.
I agree, but my point is that to achieve the balanced level of standard of living is becoming increasingly difficult! Even if I buy a new Ford Focus or VW Golf it doesn't mean that I'll be able to buy the same at 65. Most likely I'll be driving a Skoda Citigo or a Dacia Sandero instead. I accept that I won't be able to afford the same car in retirement - this is fact! In order to afford the same car now as in retirement I would have to drive a Citigo or a Sandero, which is do not want to do!!0 -
It doesn't take a lot. For a 30 year old assuming state pension age of 68, each £100 gross into a pension a month, increasing with inflation, would produce a pension pot value of £120,301 with 4.5% growth rate after inflation, about 0.5% below the long term UK stock market average return. that's enough to produce an income of £4,812 a year or £401 a month in today's money. But that's gross. 2018 auto-enrolment rules mean that at least for the first part the net cost is going to be just half of that due to tax relief and mandatory employer matching.
For an income of £28,000 the auto-enrolment requirement is 8% of eligible pay, call it £2,240 a year, £186.67 a month. 3% from employer, the rest employee and tax relief. For the 30 year old that'd get to a 4% income level of £8,192 a year on top of about £8,000 flat rate state pension. That'd be £14,953 after tax income a year if it was all subject to income tax with a £10,000 annual allowance. 25% of the pension income would be from the tax free lump sum which could be moved to an ISA to make that part tax free, increasing the after tax income to £15,362 a year.
While working the after tax and 5% gross pension contributions net income would be £21,990 a year.
That's a combined after tax pension income that is 69.9% of the working life after tax income, above the often-quoted 60% replacement level. For a net cost of about £93 a month (5/8ths of the auto-enrolment less 20% income tax).
"you need to save an awful lot". Nope. Not even close to an awful lot. Just takes getting started at a reasonably early age, persevering and getting average investment returns.
Ok, so as you appear to be very good with figures, let me ask you this question:
I am now 47 with a current pension fund of £300k. I'm investing 22% of my income (£61k a year) with my employer contributing 12%, making a total of 34% of salary (a lot in my view). Assuming a retirement age of 65, how much do you think I can expect to receive as a private pension? I estimate a fund of around £500k in today's money, generating perhaps £18-20k a year income. Is that a fair assumption?
So this IS a lot to put in for only 1/3 of my salary at best!!0 -
I have to do something now but a quick start is that the existing £300k growing at 4.5% a year for 18 years could produce a pots size of £662,453 and at 4% income that would produce an income of £26,501 a year before tax. With 8k state pension that'd take you to 34,501 a year before tax.
I'll look at the rest later but you should be thinking of early retirement, not age 65 if you're comfortable with that!0 -
Ok, so as you appear to be very good with figures, let me ask you this question:
I am now 47 with a current pension fund of £300k. I'm investing 22% of my income (£61k a year) with my employer contributing 12%, making a total of 34% of salary (a lot in my view). Assuming a retirement age of 65, how much do you think I can expect to receive as a private pension? I estimate a fund of around £500k in today's money, generating perhaps £18-20k a year income. Is that a fair assumption?
So this IS a lot to put in for only 1/3 of my salary at best!!
(18 years x .34 x £61k) + £300k = £673k by my calculations, even with no growth (or assuming growth only matches inflation). Where do you get £500k from?(Nearly) dunroving0 -
Ok, so as you appear to be very good with figures, let me ask you this question:
I am now 47 with a current pension fund of £300k. I'm investing 22% of my income (£61k a year) with my employer contributing 12%, making a total of 34% of salary (a lot in my view). Assuming a retirement age of 65, how much do you think I can expect to receive as a private pension? I estimate a fund of around £500k in today's money, generating perhaps £18-20k a year income. Is that a fair assumption?
So this IS a lot to put in for only 1/3 of my salary at best!!
You are investing just over £20K per year. Assume an investment return of 3% above inflation which isnt wildly ambitious and assume that your salary and contribution increase with inflation by 65 your pot should be worth £1M in todays terms. You should be able to withdraw 4% = £40K gross broadly inflation matching per year without a serious risk of running out of money before you die.0 -
Which comes out as a net income just about identical to your current net income - and that's before you add in state pension.You are investing just over £20K per year. Assume an investment return of 3% above inflation which isnt wildly ambitious and assume that your salary and contribution increase with inflation by 65 your pot should be worth £1M in todays terms. You should be able to withdraw 4% = £40K gross broadly inflation matching per year without a serious risk of running out of money before you die.
Conclusions:
1 Unless you have very expensive plans for your retirement you should probably plan to retire earlier or reduce your contributions.
2 Getting to a decent pension is an awful lot easier than you seem to think0 -
What a pointless thread. The OP asks a reasonable question then tells us he actually has 25 k income and 700 k in investments.. Presumably he is feeling very smug and is desperate to tell everyone how much money he has.. These threads usually become a !!!!ing contest
Let's see who can !!!! the highest:rotfl:
Anyway with OPs assets unless he has the secret of eternal life he can retire now
( preferably somewhere where he dosnt have access to a computer):TOk, so as you appear to be very good with figures, let me ask you this question:
I am now 47 with a current pension fund of £300k. I'm investing 22% of my income (£61k a year) with my employer contributing 12%, making a total of 34% of salary (a lot in my view). Assuming a retirement age of 65, how much do you think I can expect to receive as a private pension? I estimate a fund of around £500k in today's money, generating perhaps £18-20k a year income. Is that a fair assumption?
So this IS a lot to put in for only 1/3 of my salary at best!!
I'm really worried about my pension pot of 5 gazillion pounds and not earning enough in retiremement? Please advise?? For real?
If you've accumulated that much money I'm sure a bit of very basic maths shouldn't be too difficult for you?
No offence intended but is this still a p1ssing contest?0 -
I have to do something now but a quick start is that the existing £300k growing at 4.5% a year for 18 years could produce a pots size of £662,453 and at 4% income that would produce an income of £26,501 a year before tax. With 8k state pension that'd take you to 34,501 a year before tax.
I'll look at the rest later but you should be thinking of early retirement, not age 65 if you're comfortable with that!
That seems far better than I could imagine!
Anyway I'm happy to work until age 65 as I like my job and enjoy the buzz of management.0
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